Medical Protective Company of Fort Wayne Indiana The v. American International Specialty Lines Insurance Company

Filing 146

OPINION AND ORDER: The Court will permit the parties an opportunity to address whether there are any disputed material issues of fact that require resolution by a finder of fact with respect to whether MedPro's June 2007 notice satisfied Endorsement #16. Signed by Judge Holly A Brady on 1/16/2020. (lhc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
THE MEDICAL PROTECTIVE
COMPANY OF FORT WAYNE
INDIANA,
Plaintiff,
v.

CAUSE NO.: 1:13-CV-357-HAB

AMERICAN INTERNATIONAL
SPECIALTY LINES INSURANCE
COMPANY,
Defendant.
OPINION AND ORDER
In this litigation, Plaintiff Medical Protective Company of Fort Wayne, Indiana
(MedPro or Plaintiff), has sued Defendant American International Specialty Insurance
Company (AISLIC or Defendant), now known as AIG Specialty Insurance Company, for
breach of the terms of a 2006 policy AISLIC issued to MedPro (the Policy). MedPro alleges
that AISLIC breached the Policy when it refused to cover MedPro’s extra-contractual
liability and eventual settlement of a third party’s bad faith claim against MedPro.
The matter is scheduled for a four-day jury trial. One of the issues previously
identified for trial is whether MedPro has coverage under the Policy, as the pre-requisite
issue had not been previously determined as a matter of law through dispositive rulings
or by the decision of the court of appeals. Having now received the parties trial briefs and
heard the argument of parties’ counsel regarding the basis for coverage, it is apparent
that a differing interpretation of the Amended Special Reporting Clause, Endorsement

#16, may unnecessarily confuse the presentation of the matter to a jury. See Bar Plan Mut.
Ins. Co. v. Likes Law Office, LLC, 44 N.E.3d 1279, 1285 (Ind. Ct. App. 2015) (stating that
interpretation and construction of contract provisions are questions of law).
The parties disagree on the legal interpretation of the Special Reporting Clause,
which provides:
If during the Policy Period . . . . , the General Counsel, CEO or CFO shall
become aware of any occurrence which may reasonably be expected to give
rise to a claim against the Insured for a Wrongful Act which occurred
during or prior to the Policy Period, and provided the Insured gives written
notice to the Company during the Policy Period . . . of the nature of the
occurrence and specifics of the possible Wrongful Act, any claim which is
subsequently made against the Insured arising out of such Wrongful Act
shall be treated as a claim made during the Policy Period.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS SHALL
REMAIN THE SAME.
(ECF No. 70-1 at 130.)
AISLIC argues that the “occurrence which may reasonably give rise to claim
against the Insured for a Wrongful Act” can only refer to the rejection of the Stowers
settlement demands. Thus, if the CFO, General Counsel, or CEO became aware of the
rejection during a different Policy Period, Plaintiff was required to provide notice during
that Policy Period.
MedPro contends that “any occurrence” is sufficiently broad to encompass
developments in the underlying malpractice litigation suggesting that the Texas courts
might not enforce the damage cap for Dr. Phillips’ case, which included the ruling from
the Texas Court of Appeals.

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Occurrence is not defined in the Policy, and this is not an occurrence-based policy.
Thus, definitions from occurrence-based policies would not apply. The ordinary meaning
of

occurrence

is

“something

that

occurs”

https://www.merriam-

webster.com/dictionary/occurrence, or “something that happens; event; incident,”
https://www.dictionary.com/browse/occurrence#.
No matter how occurrence is defined, it must be something that the CFO, General
Counsel, or CEO became aware of “during the Policy Period,” and which was
“reasonably” “expected to give rise to a claim against the Insured for a Wrongful Act.”
The Court first notes that the use of the phrases “[i]f during the Policy Period” and “shall
become aware” work to imply that the occurrence is something that the CFO, General
Counsel, or CEO first became aware of during the Policy Period.
The Seventh Circuit has already determined that if the failure to settle was a
Wrongful Act, it was one that MedPro “could have reasonably foreseen” could lead to a
claim or suit. Foreseeability, however, is broader than what is “expected to give rise to a
claim.” If a claim was foreseeable, it matters not for purposes of the Policy and the
Reporting Clause that it was not expected until later. Coverage will still be denied, albeit
under an exclusion and not for failure to submit notice of a potential claim.
On the other hand, even if a claim was foreseeable based on a particular Wrongful
Act, an occurrence (happening of an event), such as failing to settle within Policy limits,
might not reasonably be expected to give rise to a claim until further developments or
occurrences, such as an excess judgment or a court decision pertaining to a statutory
damages cap. It was not the failure to settle within Policy limits that alone gave rise to
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the claim. It was merely one of the predicate events. When it became reasonable for
MedPro to expect a claim may have turned on a culmination of occurrences. As long as
any one of them became known to MedPro during the Policy Period, MedPro can argue
that it formed the basis for the notice.
What the above discussion highlights is that the use of the undefined word
“occurrence” in the Special Reporting Clause is subject to more than one reasonable
interpretation and creates an ambiguity. As such, it must be construed against the
Defendant as the insurer who drafted the Policy. “Even where clauses are unambiguous
when read within the policy as a whole, but in effect provide only illusory coverage, the
policy will be enforced to satisfy the reasonable expectations of the insured.” McGuire v.
Century Sur. Co., 861 N.E.2d 357, 363 (Ind. Ct. App. 2007). Accordingly, MedPro is not
limited to the rejection of the Stowers settlement demands—divorced from other
developments— when reporting that an occurrence was reasonably expected to give rise
to a claim.
CONCLUSION
The Court, having now set forth its interpretation of the Amended Special
Reporting Clause, will permit the parties an opportunity to address whether there are
any disputed material issues of fact that require resolution by a finder of fact with respect
to whether MedPro’s June 2007 notice satisfied Endorsement #16.
SO ORDERED on January 16, 2020.
s/ Holly A. Brady
JUDGE HOLLY A. BRADY
UNITED STATES DISTRICT COURT
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